The Toronto supply chain management software company Nulogy Corp. is suing a client from Wisconsin, alleging it misappropriated Nulogy’s trade secrets as it developed similar software to make supply chains more efficient.
Nulogy’s software allows participants all across a supply chain to maintain constant communication and co-ordination. This has become more important during the COVID-19 pandemic, as demand for some products has become unpredictable and new safety precautions are in place across chains' every link.
With clients including Procter & Gamble Co. and Kellogg Co., Nulogy says its revenue is about $20-million annually – and the company says that figure is expected to rise because of heightened supply chain scrutiny and safety because of the pandemic.
But in a filing with the Ontario Superior Court of Justice this past summer, Nulogy alleges that Wisconsin’s Menasha Corp. breached a software licence agreement that caused Nulogy to “lose a significant financing opportunity” that could have propelled its growth even further. The Toronto company is seeking $60-million in damages, plus costs and interest, from Menasha and its subsidiaries, as well as Deloitte LLP and Deloitte Consulting LLP – which Nulogy said in a legal filing had “induced” Menasha to breach the agreement and to take advantage of its trade secrets.
None of the allegations have been proven in court.
“This lawsuit is really about defending innovators and innovation,” said Kevin Wong, Nulogy’s chief operating officer, in an interview. “We have strong reasons to believe that what we’re doing is right and justified, and we’re very confident that the truth will come out through this legal process.”
He declined to discuss the financing opportunity that Nulogy allegedly lost, except to say that it was with a large Canadian fund with a long-term investment strategy that traditionally seeks minority stakes in scale-up companies ranging from $3-million to $20-million.
In an e-mailed statement, Menasha’s director of corporate communications, Kristine Pavletich, said the company “is an award-winning family-owned business that has been operating with integrity since 1849. The allegations in this claim are baseless and entirely without merit. We will defend ourselves vigorously.”
Counsel for Deloitte declined to comment.
Nulogy was founded in 2002 by four University of Waterloo graduates, including Mr. Wong. Menasha, a packaging manufacturer that also describes itself as a “supply chain solutions provider,” has licensed Nulogy’s technology since December, 2008, according to the statement of claim.
What began as a licence to use Nulogy software at one site expanded by 2016 to an agreement to use Nulogy software across the entirety of Menasha’s operations, the filing says. Menasha’s most recent licence agreement, effective for 36 months from Jan. 1, 2019, includes annual subscription fees of US$3.7-million, with additional order-value overage charges and renewal fee increases.
Nulogy’s filing says Menasha recruited Deloitte in 2015 to recommend ways to improve its operations. One option that emerged from the consulting review, called Project Zephyr, was to make all of Menasha’s information technology systems compatible with a popular enterprise software platform run by the German multinational SAP SE.
Not all of Nulogy’s features would have been effective with that strategy, the filing states, and so the company was invited to provide input to Project Zephyr. Nulogy provided “substantial information to the project,” according to the filing, to show its capabilities and interoperability with the software options Menasha was considering.
But Nulogy’s filing claims that Menasha and Deloitte had been planning a custom software solution compatible with the SAP platform as early as August, 2016.
“Menasha took advantage of its long-standing relationship with Nulogy to solicit and obtain detailed information from Nulogy about the Nulogy solution and its design and internal architecture, including strategies and solution diagrams, for the purpose of planning and developing the Menasha solution,” the filing alleges. “And while all defendants continued to represent that Deloitte was acting merely as an adviser, in fact Deloitte was engaged in the development of the Menasha solution.”
The “Menasha solution,” Nulogy alleges, was a “custom replacement” for Nulogy’s software, one whose creation both breached the customer restrictions and confidentiality terms of the parties' agreement.
Nulogy staff learned Menasha’s software was in advanced stages of development in May, 2019. The next month, the court filing says, Nulogy’s legal team told Menasha it was aware that the Wisconsin company’s software was about to be implemented in two facilities. After some back and forth, Nulogy suggested the two companies share documents and disclosures to determine whether Menasha had breached their licence agreement.
“Despite Nulogy’s efforts, Menasha has failed or refused to produce any documents or specific information to demonstrate that it has not breached the licence agreement and it has refused to provide Nulogy’s counsel and experts with reasonable access to the Menasha solution,” the filing says.
Nulogy now alleges Menasha has breached the parties' licensing agreement, and that Deloitte “induced some or all” of the alleged breaches. The Toronto company also argues that Menasha breached a fiduciary duty, and that Menasha was “enriched” by using Nulogy’s software as a “blueprint” to bypass the significant costs that would be incurred by developing software from scratch.
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